Since the invasion of Ukraine, Western countries have imposed an unprecedented wave of economic sanctions on Russia. This includes freezing Russia’s official reserves, ejecting several Russian banks from international payments, imposing a cap on the price of its oil exports, and imposing restrictions on critical and dual-use technologies.
The effects of Western sanctions on Russia remain a subject of intense debate. On trade, Borin et al. (2023) show that EU sanctions severely affected Russian capacity to directly import restricted goods from the continent; however, they also stress the risks of rerouting and circumvention. Hausman et al. (2024) argue that the ensuing welfare losses are significantly larger for Russia than for sanctioning countries. On finance, Drott et al. (2024) show that EU sanctions significantly reduced transactions with Russian banks on the European TARGET2 payment system. Meanwhile, Cocozza et al. (2023) document the increasing role of Russia’s private sector in managing Russia’s foreign assets as sanctions hampered central bank operations.
On balance, the impact of sanctions on Russia’s economy and on its ability to sustain the war effort presents a complex picture. On the one hand, inflation and interest rates have reached record highs – indicating significant economic strain – and debt is mounting (Kennedy 2025). 1 On the other hand, growth remains resilient, military spending is at historical highs, and political resolve is unshaken. 2 While evaluating the overall impact of sanctions is beyond the scope of this column, several factors contribute to the nuanced picture. These include Russia’s pivotal role in global energy markets, the specific design and implementation of sanctions, the role played by non-sanctioning countries, Russia’s policy responses to mitigate economic pressure, and its structural shift towards a war economy (Itskhoki and Ribakova 2024, Gorodnichenko et al. 2024, ODNI 2023).
Within this context, we unveil a new dimension of the impact of sanctions: the build-up of a sizeable pile of trade credits that Russian firms hold vis-à-vis their customers. As payment issues mount, Russian exporters seem to be financing a significant portion of the country’s exports themselves, by extending trade credit to their buyers. The ensuing shortfall in foreign exchange liquidity, together with other sanctions on Russia’s foreign exchange market, may contribute to the recent bouts of exchange rate volatility.
From sanctions to payment issues
The multiple rounds of Western sanctions since February 2022 have progressively affected Russia’s ability to process and settle international payments. The exclusion of ever larger chunks of its banking system from payment circuits in dollars and euros 3 is compounded by the threat of secondary sanctions against third country banks that continue to trade with Russia. 4 While Russian companies seek alternatives through complex sourcing and payment arrangements, trade remains difficult and expensive. 5
From an accounting perspective, the growing difficulties in payments give rise to an interesting phenomenon: the accumulation of a large (and largely illiquid) pile of trade credits. As the settlement of trade bills becomes increasingly difficult, Russian exporters seem to be financing a significant portion of the country’s exports themselves, by extending trade credit to their buyers.
Russian exporters have accumulated trade credits to such a scale that this phenomenon likely contributes to the increasing volatility of the rouble, which has halved in value against the dollar since June 2022. As the exchange rate is largely determined by the balance of supply and demand for foreign currency among Russian importers and exporters, 6 issues in payments limit the availability of foreign currency in the domestic market, weighing on the rouble exchange rate – somewhat like forced capital outflows.
The rise of trade credits
Since the beginning of the war, Russia logged record–breaking export revenues, fuelled in large part by its energy exports (Figure 1). This resulted in foreign exchange inflows that, after paying for imports, salaries of foreign nationals, and financial obligations to non-residents, piled up in foreign assets (Cocozza et al. 2023).
In normal times these surpluses would lead to the accumulation of official reserves, foreign direct investment (FDI), portfolio and other credits vis-à-vis the rest of the world. However, since 2022, Russia’s current account surpluses mostly resulted in the accumulation of ‘Other Investment’ assets (Milesi-Ferretti and Conner 2024). 7 Notably, there has been a sharp increase in liquid foreign assets, captured under ‘Loans, Currency and Deposits’ 8 and ‘Other Account Receivables’, the latter essentially capturing trade credits (Figure 2). 9 This is particularly interesting, both because of its sheer size, and because of what it tells us on the impact of economic sanctions.
In terms of size, since 2022, over 40% of current account surpluses ended up in trade credits. As a result, the stock of Russian trade credits against the rest of the world reached an astounding $180 billion (almost 8% of GDP, Figure 3).
To see how this relates to sanctions, let’s look at external sector accounting of export payments. As exports are usually paid with some delay, the shipment of a good from Russia to another country gives rise to a claim by a Russian exporter on a foreign buyer. In external statistics, this shows as the value of the export being financed by a trade credit. When the foreign buyer settles their debt, external statistics write off the trade credit, turning it into an asset that can be used to pay for imports, be invested in search of returns, be used to settle liabilities vis-à-vis non-residents, or be stashed away in foreign reserves. But if for some reason the foreign buyer doesn’t pay, trade credits pile up.
Therefore, trade credits are not ordinary financial assets. First, their accumulation is unlikely to result from a deliberate choice by a Russian entity but rather from a foreign buyer's inability to pay. Second, as trade credits are claims on private non-financial foreign entities, they are much less liquid than other assets and can hardly be used to pay for imports or service external debt.
Trade with India might show this in action. Since the beginning of the war, as trade between India and Russia thrived, press reports signalled payment issues between the two countries. 10 Interestingly, during this time, India’s trade and other liabilities moved in tandem with Russia’s trade credits. External statistics, however, do not show bilateral balances; it is therefore impossible to determine the nexus between the two trends (Figure 4).
The macro impact of missing payments
From a macroeconomic standpoint, the accumulation of trade credits may hamper Russia’s ability to meet its external obligations. This is shown by how Russia’s Gross External Financing Needs (GEFN) would change if exports did not yield spendable assets.
Gross External Financing Needs is a measure of the resources that a country requires to meet its external obligations, calculated as the difference between the country’s debt stock maturing within a year and its current account balance. In 2023, Russia faced $140 billion in principal payments within the year but could count on a $50 billion current account surplus. Its financing needs thus stood at $90 billion (Figure 5).
However, in 2024 Russia also accumulated $30 billion in trade credits, which do not effectively generate foreign exchange cash flow. Subtracting this from the current account balance, Russia’s financing needs increase to $120 billion (Figure 6). Combining the accumulated stock of trade credits with some $300 billion of frozen reserves, Russia has a substantial pool of assets – close to $500 billion – that cannot be used to meet its external financing needs.
Conclusions
This column highlighted the unusual surge in Russia’s trade credits, discussing their potential connection to economic sanctions, and their implications for the country’s external finances.
Sanctions are constraining Russia’s ability to engage in international transactions, resulting in a sharp rise in illiquid assets, with potential macroeconomic implications. In addition, the ensuing shortfall in foreign exchange liquidity weighs on a foreign exchange market that has already been forced into an over-the-counter structure 11by US sanctions on its central infrastructure (Savini Zangrandi 2022), and where the main correspondent banking relationships have been severed – creating the conditions for increased exchange rate volatility. 12
Given the size and resource base of the Russian economy, however, this should not be interpreted as a sign of imminent dislocations. Beyond offering insight into the mechanics of current sanctions, these dynamics provide a valuable lens for assessing sanction programmes more generally.
Authors’ note: The views expressed are personal and do not necessarily reflect the views of the Bank of Italy or the European Central Bank. We are grateful to Riccardo Cristadoro, Giovanni Veronese, Alessandro Borin, Riccardo Settimo and Claudia Biancotti for thoughts and comments.
References
Borin, A, G Cappadona, F P Conteduca, B Hilgenstock, O Itskhoki, M Mancini, M Mironov and E Ribakova (2023), “The impact of EU sanctions on Russian imports”, VoxEU.org, 29 May.
Cocozza, E, F Corneli, V Della Corte and M Savini Zangrandi (2023), “In Search of Russia’s Foreign Assets”, VoxEU.org, 10 January.
Drott, C, S Goldbach and V Nitsch (2024), “The effects of sanctions on Russian banks in TARGET2 transactions data”, Journal of Economic Behaviour and Organization 219: 38-51.
Gorodnichenko, Y, I Korhonen and E Ribakova (2024), “The Russian economy on a war footing: A new reality financed by commodity exports”, VoxEU.org, 24 May.
Hausmann, R, U Schetter and M A Yildirim (2024), “On the design of effective sanctions: the case of bans on exports to Russia”, Economic Policy39(117): 109-153.
Itskhoki, O and E Ribakova (2024), “The Economics of Sanctions”, Brookings Papers on Economic Activity.
Kennedy, C (2025), “Russia’s Hidden War Debt”, Navigating Russia, 11 January.
Milesi-Ferretti, G M and A Conner (2024), “Where have the current account surpluses gone? Russia’s accumulation of foreign assets since the invasion of Ukraine”, Brookings, 19 April.
Office of the Director of National Intelligence (ODNI) (2023), “Assessment of the Effects of Sanctions in Response to the Russian Federation's Invasion of Ukraine”, September.
Savini Zangrandi, M (2022), “Ruble payments: Shielding the ruble from financial sanctions”, VoxEU.org, 25 July.
